Insurance Contracts and Key Terms

Question 1

In general law, what does a warranty mean, and what happens if there is a breach?

Answer 1

Minor part of a contract only, breach = damages

Question 2

In Insurance, what does a warranty mean?

Answer 2

Upmost importance, must be exactly complied with.

Question 3

In general law, what does a condition mean, and what happens if there is a breach?

Answer 3

Goes to the root of the contract, breach = damages + termination

Question 4

In Insurance, what does a condition mean?

Answer 4

Minor term

Question 5

What are the rules on construction?

Answer 5

Rules of interpretation governing the meaning and scope of words used in insurance contracts.

Question 6

What two methods do courts have for interpreting policy meanings?

Answer 6

Statue and Common Law

Question 7

What statue can courts use to interpret insurance policy meaning?

Answer 7

Consumer rights act 2015

Question 8

What does UCTA mean and cover?

Answer 8

Unfair contract terms act 1997 - consumer insurance pols are excluded, covers all other contracts.

Question 9

What does The consumer rights act 2015 state?

Answer 9

Any terms in insurance policies must be plain and in intelligible language

Question 10

How does the consumers right act 2015 define an unfair term?

Answer 10

Contrary to the requirement of good faith and where it causes a significant imbalance in the parties rights and obligations under the contract to the detriment of the consumer.

Question 11

What is the consumer rights act 2015 mostly concerned with?

Answer 11

The ability of the consumer to enforce there rights under it.

Question 12

How will a court use the common law rules on interpretation in relation to an insurance contrct?

Answer 12

First adopt there ordinary meaning similar to the literal rule.
Literal rule = makes ordinary sense, grammar and punctuation should apply.
In insurance = there are lots of technical terms so words are presumed to bare there ordinary meaning but it can be over written and the court can apply a technical or legal interpretation to enable them to decipher the meaning behind the terms in this context.

Question 13

Under common law rules of interpretation, what is it important that the courts concider?

Answer 13

Context and care giver to consider the meaning on the words in line with the words before and after them.

Question 14

What is the noscitur a sociis rule?

Answer 14

Sociis = social = company - remember it this way

(‘a word may be known by the company which it keeps’) rule = This general principle of interpreting a word in the light of other words used with it

Question 15

What is the ejusdem generis rule?

Answer 15

Generis = general = generally the same - rememeber it this way

‘things of the same kind’ rule.
= general words which follow specific words are taken as referring to
‘things of the same kind’

Question 16

What is the expressio unius est exclusio alterius rule?

Answer 16

expressio = exprss = specifically
unius = uno = one thing
est = impliies
exclusio = exclusion
alterius = alternative = other thinfs

(‘specifying one thing implies the exclusion of other things’ – those which are not specified).
= where specific words are used which are not followed by any general words, the provision in question applies only to the things specified.

Question 17

What rule is used as a last resort where there is ambiguity?

Answer 17

ambiguity = contray = contra

the contra proferentem rule

Question 18

What is the the contra proferentem rule?

Answer 18

Words used in insurance contracts may be ambiguous, that is, they may carry two (or more) possible meanings, the rule will apply where the clause is construed against the party who proposed it (i.e. the drafter of the clause), so that the other party is given the benefit of the doubt.

Most pols drafter by insurer so will go in the insured favour.
If drafter by broker it will go in fav of insured as the broker will be acting as the agnet of the insured.

Question 19

What are the three rules around inconsistancies or contradictions?

Answer 19

1. Printed words conflict with hand written or typed words. Latter takes precedent.
2. Policy documents take precedent over proposals which led to the formation of the contract.
3. Express terms of a contract overrule any implied terms.

Question 20

Under IA2015 what is a warranty?

Answer 20

Promise made by the insured relating to certain facts
OR
Where they agree to do or not do something

Question 21

Do warranties only apply to current facts?

Answer 21

They can relate to past and present facts
AND
Most involve a continuing requirement of good housekeeping

Question 22

Must warranties be complied with?

Answer 22

They must be exactly complied with.

Question 23

What happens under IA15 if you breach a warranty?

Answer 23

Cover is suspended until the breach is remedied.

Question 24

A court will apply certain standard to determine whether a term is a warranty, what are they?

Answer 24

.Does the term go to the root of the transaction
.Whether a term bare materiality on the risk
.Whether damages would be an adequate remedy for a breach

Question 25

What is a basis of contract clause?

Answer 25

Clauses that used to convert statements made in proposal forms in warranties.
Abolished by CIDRA12 and IA15

Question 26

What does section 10 in IA15 state?

Answer 26

An insurer has no liability under a contract of insurance in respect of something happening after a warranty in the contract has been breached until the breach has been remedied.

Question 27

What is the caveat of s10?

Answer 27

It must be read in conjunction with S11 of the act.

Question 28

What does s11 of IA15 state?

Answer 28

titled “terms not relevant to the actual loss”

This section does not apply to a term which defines the risk as a whole but to one which if complied with would reduce the risk of one of more of the following:

1. a loss of a particular kind
2. loss at a particular location
3. loss at a particular time

Therefore if a loss occurs where a warranty has not been complied with the insurer cant rely on that non-compliance to exclude it if the insured can show that the non-compliance could not have increased the risk of the loss which actually occurred in the circumstances it occurred.

EG. an alarm warranty, the alarm was off but there was a fire, no connection to the non compliance.

Question 29

What is the purpose of s11?

Answer 29

To prevent the insurer from denying liability for a breach of a contractual term where the breach may not have any relevance to the actual loss.

Question 30

What is condition precedent to the contract?

Answer 30

A condition that must be complied with prior to the contract coming into existence.

Question 31

What happens when a condition precedent to the contract is failed?

Answer 31

The policy will not come into effect.

Question 32

What is a condition precedent to the liability or recovery?

Answer 32

A condition that must be adhered to in the event of a loss for insurers to accept liability to pay a claim.

Claims conditions, such as those requiring the insured to give prompt notice of
a loss, or not admit liability, provide examples of this category.

Question 33

What happens when a condition precedent to the liability or recover is not complied with?

Answer 33

Could result in the insurers avoiding that particular claim but not the policy itself.

Question 34

What is a collateral condition?

Answer 34

merely collateral

Also know as a mere condition.
They apply to minor terms and tend not to effect the contract as they are usually not that serious.

eg. late notification of a claim and the insurer lost the opportunity to investigate the cause of the insured loss, the insurer will be entitled to deduct from the amount to be paid to the assured the amount of the prejudiced, e.g. 15% deduction).

Question 35

What is an exemption clause/exclusion?

Answer 35

Exclusions on a policy - they excuse insurers from liability in certain circumstances.

For example, a fire policy may exclude fire caused by earthquake and a theft policy may
exclude theft of money, or theft involving collusion by an employee of the insured.

Question 36

What is a suspensive conditions/clauses describing the risk?

Answer 36

Prior to IA15 they would cause the policy to be suspended until rectified. Following IA15 essentially all breaches as suspensive clauses.

Question 37

Hoe can you contract outside IA15?

Answer 37

Consumer insurance = no

Non-consumer = Certain sections of IA15 can be contracted outside of provided the insurer takes sufficient steps to draw the disadvantages termed to the insureds attention prior to the contract being entered into or the variation is agreed.

Question 38

How is a breach of warranty treated in motor insurance?

Answer 38

Breaches of warranties and conditions are treated slightly differently in compulsory insurances.

The Road traffic Act 1988 states than an insurer cant reject a third party victims claim by relying on certain types of condition or warranty.

The act also allows insurers to reclaim from the policy holder any damages which they have been obliged to pay the third party.

Question 39

How is a breach treated in EL?

Answer 39

The Employers Liability (compulsory insurance) regulations 1998 has similar rules to the Road traffic act.

An insurer can reject an EL claim on the grounds of late notification because the insured failed to comply with a policy condition which requires him to take reasonable care to protect his employees against injury or disease and the use of policy excesses is also prohibited.

Question 40

What is a joint policy?

Answer 40

Indivisible, rights stand and fall together.
A breach affects the whole policy and the interests of the assured are the same.

Question 41

What is a composite policy?

Answer 41

The interests are different eg mortgagor and mortgagee.
Bundle of separate policies banded into one.
Breaches of one individual invalidates there own cover but not the others.